High net worth individuals (“HNWIs“) around the world have traditionally regarded Switzerland, London and New York as the main global wealth management hubs. However, over the last 5 years, Singapore is increasingly regarded by such HNWIs as a serious alternative to these traditional centres.
In 2011, assets under management by Singapore-based managers have reached 1 trillion US dollars. This article briefly highlights the key factors making Singapore a rising jurisdiction amongst HNWIs for the setting up of trusts for their wealth management purposes.
Picture Singapore Skyline, courtesy of Nick Socrates Wiki Commons.
Robust Regulatory Regime: Singapore trust law is based substantially upon English trust principles. The principal statutes governing trusts that are most relevant to the private banking and wealth management industry are the Trust Companies Act1 and the Trustees Act2.
The Monetary Authority of Singapore (“MAS”) is the regulator of trust companies under the TCA, and supervises the complementary activities of trust services, private banking and wealth management in Singapore. The TCA imposes mandatory licensing for all corporations that carry on or hold themselves out as carrying on any “trust business”3 in Singapore. The licensed trust company is required to appoint at least two resident managers with certain minimum credentials and who must be approved by the MAS after a “fit and proper” test to ensure their suitability for the role.
Well Defined Legal Framework for Trusts: The Trustees Act was amended to facilitate and promote wealth management in Singapore through the use of trusts and trustee services. This is part of the Singapore government’s broader aim to enhance Singapore’s position as a leading financial and wealth management centre. Salient provisions of the Trustees Act include:
(a) Reservation of power permitted: Section 90(5) of the Trustees Act expressly provides that no trust or settlement of property on trust shall be invalid by reason only that the settlor reserves certain powers to himself. The powers concerned are those of investment or asset management.
(b) Promotion of Singapore trusts to foreigners: Under the Trustees Act, a person who is a non-Singapore citizen nor non-Singapore domicile is excluded from forced inheritance and succession rules, provided the trust is governed under Singapore law and the trustees must be resident in Singapore. This would allay fears by foreigners about the enforceability of such trusts in Singapore due to forced heirship rules in their home jurisdictions.
(c) Rules against perpetuities addressed: Under Section 27(2)(b) of the Trustees Act, the validity of a trust extends to 100 years unless a shorter period is specified in the trust, in order to address the rule against perpetuities for trusts.
Confidentiality: Singapore has enacted comprehensive secrecy and confidentiality provisions to the Banking Act, Chapter 19 of Singapore (“Banking Act”)4 and the Trust Companies Act5 to offer protection to the personal information of banking clients and settlors and beneficiaries of trusts. That said, these secrecy laws are subject to Singapore’s commitment to assist the international community in combating against money laundering, terrorism financing and tax evasion.
Friendly Tax Environment: Singapore has a territorial tax system (only Singapore-sourced income is subject to Singapore income tax) and only taxes foreign-sourced income upon its remittance (or deemed remittance) into Singapore. Capital gains are not subject to tax in Singapore and estate duty was abolished in 2008. Singapore’s highest personal income tax rate is 20% whereas its corporate tax rate is flat at 17%. In addition, Singapore has an extensive network of double taxation agreements with over 70 jurisdictions. Qualifying Foreign Trusts (“QFTs”), which are trusts created in writing where the settlor and beneficiaries are neither citizens nor residents of Singapore or are foreign companies, enjoy attractive tax exemptions. To enjoy the tax exemption, the QFT must be administered by a Singapore licensed trust company.
Open Economy and Sound Economic Policies: Singapore’s greatest competitive advantage is the openness of its economy. It has been regularly rated as one of the world’s freest economy, and easiest jurisdiction to carry on business by the World Bank. There is no exchange control, and the exchange rate of the Singapore dollar is managed by MAS, against a basket of currencies of its main trading partners, with the objective of keeping inflation low and maintaining the purchasing power of the Singapore dollar. Global financial institutions (including private bankers) and fund managers are attracted to Singapore due to its competitive tax incentives for the financial and wealth management industry.
The wealth management industry in Singapore continues to be in an exciting phase of growth, notwithstanding current global economic uncertainties. Singapore has set its sights on attracting the world’s wealthiest to its shores. With its open economy, well-defined legal and regulatory framework, and tax neutrality, Singapore is well positioned to be the premier wealth management hub in Asia, acting as the gateway for the world to tap Asian investments and to the world for Asian investors.
1 Chapter 336 of Singapore (“TCA”).
2 Chapter 337 of Singapore (“Trustees Act”).
“Trust business” is defined widely to include acting as trustee for an express trust, administering an express trust, creating an express trust, and arranging for any person to act as a trustee for an express trust.
4 Under Section 47 of the Banking Act, a blanket prohibition exists against disclosure of “customer information” by a bank (or any of its officers) to any other person except as expressly provided in the Banking Act.
5 Similar provision prohibits disclosure of information regarding a “protected party” (which is defined as, in relation to a trust company, a trust for which the trust company provides trust business services and includes the settlor and beneficiary under the trust) by a licensed trust company (or any of its officers) to any other person, except as expressly provided in the TCA.